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Domestic Thinking.

The fundamentals were bearish. But experts noted that technical factors were still triggered by domestic thinking among state statisticians and most American users of motor fuel, triggering wicked short-covering rallies. That was because not every user of US gasoline was looking for a home run trade. Many domestic fuel traders preferred short-term gains.

Traders linked to multi-national oil companies, however, then noted that volatility in the American market had slowed. The lack of fresh news and un-certainty over the flood damage caused that. Traders had priced-in refinery shut-downs. On Aug. 31, such market players were waiting to find out how long the coastal refiners had to be closed and to the region's real capacity still running after Harvey hit the coast.

There were questions, for example, as to how long the refinery closures were to last, whether for days, weeks, or months. And if refineries were to go back on stream involved all or only a few of them. Will some to be producing at 25%, 50% or 00%?. These types of answers were to determine the price action.

Goldman Sachs said it could take months before all production could be brought back on stream. The bank also said that, based on damage from previous hurricanes which perhaps 10% of the currently shut-in capacity could remain un-available for several months.

So at that time, the market remained bearish. Until a time-line for the refineries to come back on stream was established, however, most expected a more volatile trade.

The daily October WTI chart on Aug. 31 indicated that the key number for the WTI price was $45.57/b. If this price holds, the short covering may begin. If it fails as support, then many were looking for a break to $44.01/b.

Yet many traders showed resolve as summer trading neared the end. Global market-tied stocks were higher. On Aug. 31, there were many who still depended on the following indicators:

Daily market forecasts for the EUR/USD, cold, WTI/Brent, USD/JPY, GBP/USD spreads.

Oil price fundamental daily forecasts, with many asking: How Long Will Refineries Be Shut Down?

Solid economic data drive up the US dollar, which will drive down WTI prices.

Gold prices will continue to fall as long as the US dollar's recovery will last.

The ICE/NYMEX week on Friday Aug. 25, 2017, ended with October Brent closing at $52.41/b and WTI settled at $47.87, up much from the previous weeks as US-based IOCs in the Gulf of Mexico evacuated their platforms, refineries and terminals. They had anticipated Hurricane Harvey, which on Aug. 26, 2017 began hitting Texas and caused the worst disaster in many years. The Aug 25 natural gas contract price on NYMEX closed at $2.89/m BTUs.

The newest processing unit in the US is the 42,500 b/d condensate splitter which began operating in January 2017 at the crude oil-based Port Arthur refinery. The new unit raised the plant's capacity to 603,000 b/d, making it the largest American refinery. The plant's upgrading had begun in 2012. It is one of the refineries owned by Saudi Aramco and the firm running it is Motiva Enterprises (see its profile in omt16 in this volume's 23/30 Oct 2017 issue).

The last of the complete US refineries was built in 1976 - most of the US refineries were built before the mid-1970s as none of America's scientists had foreseen the changes in the global climate.

2015's ICE/NYMEX week on Aug. 14 had ended with Brent closing at $49.03, from $47.94. WTI by then had closed at $42.50. Global oil prices had fallen sharply since the mid-June 2014 because of a price war waged by the Saudi-led bloc in OPEC (see non-commercial factors to global pricing of commodities on following pages).

The 2013 NYMEX week on Aug. 9 had ended with Brent closing at $108.22/b. The Aug. 5 level was $110.07. WTI on Aug. 9 closed at $105.97. WTI dragged Brent down. Brent's premium over WTI fell to $2.25, from over $23/b in most of the previous years.

The EIA, OPEC's, APS Energy Group and other pricing monitors say the global oil glut in 2017 could continue or even worsen - mostly caused by the price war, rising US supply after recovery on the US Gulf Coast, and a fall in global petroleum demand, forcing LNG and pipeline gas prices to continue their decline. Global energy experts warn the glut is likely to remain through 2018 and probably beyond.

The rise in Nigeria's petroleum exports - crude oil/condensate and nat. gas/LNG - is set to continue after repairs to vital installations by Shell, Chevron, ENI's Agip, Total and other IOCs in Delta and shallow-water fields, as well as smaller firms.

This followed a new amnesty deal with the main labour unions, NUPENG and PENGASSSAN, which have their own groups armed since 2015 in co-ordination with commando units first former during Muhammadu Buhari's 1984-85 military dictatorship, with Buhari popularly elected federal president on March 28, 2015. Since these and the other Nigerian armed forces later pushed the ISIS-tied Poko Haram out of the petroleum-rich areas like the Niger Delta and the country's offshore, these two super-unions have aligned with Abuja.

Earlier this year, NUPENG and PENGASSSAN praised the Senate for its resolve to pass all the parts of the PIB as soon as it can. This is to transform NNPC and turn its core into a profitable company as a private firm. The change is part of a trend in the petroleum business (see omt6NigrFields21Aug17).

Saudi Aramco's crude oil output before the collapse of world oil and gas prices from mid-2014 had been above 10m b/d. Since then, Riyadh has decided to privatise Saudi Aramco, which has become a trend-setter for most other sectors in the resource-rich countries of the developing world. Before mid-2014, OPEC's oil price hawks used to be trend-setters for resource-nationalism in the developing world.

Despite this major trend across the world, Iran is still set to hit the petroleum market with over 1m b/d of extra crude oil supply. Iran could set a more dangerous global trend if its co-ruling Islamic Revolutionary Guard Corps (IRGC), which leads the Safawi extremists in the Shi'ite theocracy and any part of the world where it has affiliates, like Lebanon's and Syria's Hizbullah also active in Africa, America's Latin countries, etc. The IRGC has links with Sunni terror groups like ISIS and leads the Popular Mobilisation Forces (PMF) of over 50 Safawi militia gangs in control over Iraq's PM Haidar al-Abadi's office (see rim2IrnIsr28Aug17).

If the IRGC gets Tehran to end its July 14, 2015, nuclear deal with the US-led 5+1 powers, in the coming week, a hostile American Congress could wage an economic war with Iran before end-September 2017. IRGC leaders and ministers in President Rowhani's government moves "to prevent the US Congress from blocking this deal" are expected to be limited to mass demonstrations in the US and other parts of the world by Iranian immigants who have been indoctrinated in Safawism since early 2016.

Global crude oil prices could be influenced by three factors: (1) the US dollar's value, (2) a crisis more serious than in 2015 in China, and (4) the Saudi decision - whether or not the price war will continue beyond 2018. Our expectation is a price range of $40-55/b as an average for paper WTI and Brent until end-2018.
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Publication:APS Review Oil Market Trends
Date:Aug 28, 2017
Previous Article:The Global Petroleum Perspective.
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